By Timothy Aeppel
(Reuters) – Austin Ramirez until recently planned to build a new factory in Mexico as part of his Wisconsin-based company’s strategy to expand global production and shift away from China.
“Mexico made a ton of sense six months ago,” said the CEO of Husco, a producer of hydraulic components used in automotive and off-road equipment like bulldozers.
Now, not so much.
Like many other U.S. manufacturers, Husco faces a growing list of trade policies under the new administration of President Donald Trump that have jumbled investment plans and cast a shadow over an upturn in the domestic manufacturing economy.
The threat of tariffs against Mexico, the largest U.S. goods trading partner, jolted many producers like this.
Trump made boosting manufacturing a theme on the campaign trail, promising among other things tariffs and fewer regulations. That stance helped win support in faded industrial regions, including swing states like Wisconsin.
But now that those policies are taking shape, including moves this week to put additional 25% tariffs on all imports of steel and aluminum, the true costs are also coming more into focus. Tariffs on metals, for instance, will help domestic mills that produce them but mean higher prices for the much larger network of companies like Husco that use those raw materials.
Meanwhile, the threat of trade wars has created growing uncertainty over how companies should shape their global supply chains.
Nick Pinchuk, CEO of Snap-On, a toolmaker based in Kenosha, Wis., told investors last week that getting the election in the “rearview mirror” will reduce uncertainty among his customers and help boost business in the year ahead.
He noted it’s hard for these customers, many of them blue-collar mechanics, not to feel lingering “macro uncertainty” created by “ongoing wars, immigration disputes, and lingering inflation.”
Manufacturing, which accounts for 10.3% of the economy, was hit hard by the Federal Reserve’s aggressive monetary policy tightening between March 2022 and July 2023 to tame inflation. Though the central bank started cutting rates last September, the factory sector has shown few signs of a strong growth upturn.
A key survey of U.S. manufacturing activity showed the sector experienced expansion in January for the first time in more than two years, but the threat of tariffs has economists questioning whether the rebound can be sustained.
To be sure, some parts of manufacturing are going strong, thanks in many cases to order books that were filled to overflowing during the pandemic boom. Emerson, the St. Louis-based engineering solutions provider, reported first-quarter profits that topped estimates last week, aided by resilient demand in its valves and regulators unit.
CEO Lal Karsanbhai told investors in a call that he sees orders ramping up meaningfully in the second half of the year.
But even they see tariff turmoil. The company said it was ready to implement price increases and surcharges to protect its profits if new tariffs hit Mexico, for instance.
David MacGregor, senior analyst and president of Longbow Research in Cleveland, said that “until the last couple of weeks” he thought U.S. factories were setting up for a solid year in 2025.
“Most of these companies have a pretty good order backlog,” he noted.
But MacGregor said he now sees more companies “tapping on the brakes.” One telling detail he saw in the latest wave of earnings reports is the weakness in spending by consumers on big discretionary items, like motorcycles.
Harley-Davidson, the Milwaukee-based motorcycle maker, forecast 2025 profits and revenue to be flat to down 5 percent as the company feels the heat from consumers tempering big-ticket purchases. Demand for all types of high-priced toys, a type of spending that boomed during the pandemic days of lockdowns, has fallen off, while sticky inflation and high interest rates have forced more consumers to prioritize spending on necessities.
John Healy, a managing director at Northcoast Research in Cleveland, said he and other analysts were expecting consumers to feel more comfortable spending in the months ahead.
“But that hasn’t materialized at retail yet,” he said, noting that while interest rates set by the Fed have declined, consumer borrowing costs have moved down only marginally.
At Husco, which is based in Waukesha, Wis., CEO Ramirez said his business remains robust and he still wants to move forward with that expansion once planned for Mexico, but not in the United States.
Building in the U.S. isn’t an option, he said, because the items to be produced in the new operation have a high labor content. He is considering some other lower-cost country, perhaps India. But recent weeks have shown that tariffs could hit anywhere, Ramirez said.
“We’ve seen how things can change,” he said, “so it’s really debilitating to make a decision.”
(Reporting by Timothy Aeppel; editing by Daniel Burns and Claudia Parsons)
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